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on Industrial Competition |
| By: | Anderson, Simon P.; Foros, Øystein; Kind, Hans Jarle |
| Abstract: | In a Hotelling duopoly model, we introduce quality that is more appreciated by closer consumers. Then higher common quality raises equilibrium prices, in contrast to the standard neutrality result. Furthermore, we allow consumers to buy one out of two goods (single-purchase) or both (multi-purchase). Prices are strategically independent when some consumers multi-purchase because suppliers price the incremental benefit to marginal consumers. In a multi-purchase regime, there is a hump-shaped relationship between equilibrium prices and quality when quality functions overlap. If quality is sufficiently good, it might be a dominant strategy for each supplier to price high and eliminate multi-purchase. |
| Keywords: | content competition; hotelling model with quality; incremental pricing; multi-purchase |
| JEL: | D12 D71 D82 H41 O12 |
| Date: | 2012–04 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:8923&r=com |
| By: | Mathiesen, Lars (Dept. of Economics, Norwegian School of Economics and Business Administration) |
| Abstract: | We are concerned with economic analyses of markets from the perspective of supporting a decision maker selling in the market. The competitive pressure and the price formation are central issues. The goal of this paper is to highlight the remarkably different price patterns obtained from different modes of seller behavior in a spatial market. This is exemplified by models of price taking versus the oligopolistic Cournot mode of behavior. Although a particular market, namely the European market for natural gas is used for illustration, the insights from this exercise apply to any industry where suppliers have market power, their locations differ, and their costs of supplying individual segments of the market are non-negligible and differ. When market power is present and one seeks insight into competition and price formation, details in other dimensions cannot compensate for not modeling the exertion of market power. |
| Keywords: | Price formation; Spatial market; Market power. |
| JEL: | C68 D41 D43 L11 L13 |
| Date: | 2012–04–02 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:nhheco:2012_005&r=com |
| By: | Fanti, Luciano; Gori, Luca; Sodini, Mauro |
| Abstract: | The present study analyses the dynamics of a nonlinear Cournot duopoly with managerial delegation and bounded rational players. Problems concerning strategic delegation (based on relative performance evaluations) have recently received in depth attention in both the theoretical and empirical industrial economics literatures. In this paper, we take a dynamic view of this problem and assume that the owners of both firms hire a manager and delegate output decisions to him. Each manager receives a fixed salary plus a bonus offered in a publicly observable contract. The bonus entitled to the manager hired by the owner of every firm is based on relative (profit) performance. Managers of both firms may collude or compete. In such a context, we find, in either cases of collusion and low degree of competition, that synchronised dynamics takes place. However, when the degree of competition increases the dynamics can undergo symmetry-breaking bifurcations that may cause relevant global phenomena. In particular, on-off intermittency and blow-out bifurcations are observed for several parameter values. Moreover, coexistence of attractors may also occur. The global behaviour of the noninvertible map is investigated through the study of the transverse Lyapunov exponent and the folding action of the critical curves of the map. These phenomena are impossible under profit maximisation. |
| Keywords: | Cournot; Managerial delegation; Nonlinear dynamics; Oligopoly; Relative profits |
| JEL: | L13 D43 C62 |
| Date: | 2012–04–04 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:37834&r=com |
| By: | Andersson, Ola (Research Institute of Industrial Economics (IFN)); Argenton, Cédric (CentER & TILEC); Weibull, Jörgen W. (Stockholm School of Economics) |
| Abstract: | In games with continuum strategy sets, we model a player’s uncertainty about another player’s strategy, as an atomless probability distribution over the other player’s strategy set. We call a strategy profile (strictly) robust to strategic uncertainty if it is the limit, as uncertainty vanishes, of some sequence (all sequences) of strategy profiles in which every player’s strategy is optimal under his or her uncertainty about the others. General properties of this robustness criterion are derived and it is shown that it is a refinement of Nash equilibrium when payoff functions are continuous. We apply the criterion to a class of Bertrand competition games. These are discontinuous games that admit a continuum of Nash equilibria. Our robustness criterion selects a unique Nash equilibrium, and this selection agrees with recent experimental findings. |
| Keywords: | Nash equilibrium; Refinement; Strategic uncertainty; Bertrand competition; Log-concavity |
| JEL: | C72 D43 L13 |
| Date: | 2012–03–30 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:iuiwop:0910&r=com |
| By: | Lauren Cohen; Dong Lou |
| Abstract: | We exploit a novel setting in which the same piece of information affects two sets of firms: one set of firms requires straightforward processing to update prices, while the other set requires more complicated analyses to incorporate the same piece of information into prices. We document substantial return predictability from the set of easy-to-analyse firms to their more complicated peers. Specifically, a simple portfolio strategy that takes advantage of this straightforward vs. complicated information processing classification yields returns of 118 basis points per month. Consistent with processing complexity driving the return relation, we further show that the more complicated the firm, the more pronounced the return predictability. In addition, we find that sell-side analysts are subject to these same information processing constraints, as their forecast revisions of easy-to-analyse firms predict their future revisions of more complicated firms. |
| Date: | 2011–06 |
| URL: | http://d.repec.org/n?u=RePEc:fmg:fmgdps:dp683&r=com |
| By: | Pedro Bordalo; Nicola Gennaioli; Andrei Shleifer |
| Abstract: | We present a theory of context-dependent choice in which a consumer's attention is drawn to salient attributes of goods, such as quality or price. An attribute is salient for a good when it stands out among the good's characteristics, in the precise sense of being furthest away in that good from its average level in the choice set (or more generally, an evoked set). A local thinker chooses among goods by attaching disproportionately high weights to their salient attributes. When goods are characterized by only one quality attribute and price, salience tilts choices toward goods with higher ratios of quality to price. We use the model to account for a variety of disparate bits of evidence, including decoy effects in consumer choice, context-dependent willingness to pay, balance of qualities in desirable goods, and shifts in demand toward low quality goods when all prices in a category rise. We then apply the model to study discounts and sales, and to explain demand for low deductible insurance. |
| JEL: | D03 D11 |
| Date: | 2012–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:17947&r=com |
| By: | Maria Cecillia Bustamante |
| Abstract: | This paper provides an alternative real options framework to assess how firms strategic interaction under imperfect competition a¤ects the industrial dynamics of investment, concentration, and expected returns. When firms have similar production technologies, the cross sectional variation in expected returns is low, firms investments are more synchronized, .rms. expected returns co-move positively, and the industry is less concentrated. Conversely, in more heterogeneous industries, the cross sectional variation in expected returns is high, there are leaders and followers whose expected returns co-move negatively, and the industry is more concentrated. The model rationalizes several empirical facts, including: (i) that firms returns co-move more positively in less concentrated industries; (ii) that booms and busts in industry returns are more pronounced in less concentrated industries; and (iii) that less concentrated industries earn higher returns on average. |
| Date: | 2011–06 |
| URL: | http://d.repec.org/n?u=RePEc:fmg:fmgdps:dp681&r=com |
| By: | CARLETTI, Elena; HARTMANN, Philipp; ONGENA, Steven; ; |
| Abstract: | We construct a unique dataset of legislative reforms in merger control legislation that occurred in nineteen industrial countries in the period 1987-2004, and investigate the economic impact of these changes on stock prices. In line with the hypothesis that merger control should challenge anticompetitive mergers and thus limit future monopolistic profits, we find that the strengthening of merger control decreases the stock prices of non-financial firms. In contrast, we find that bank stock prices increase. Cross sectional regressions show that the discretion embedded in the supervisory control of bank mergers is a major determinant of the positive bank stock returns. This suggests that merger control is anticipated to create a “separation of powers” and “checks and balances” mechanism in the banking sector that mitigates the potential for abuse and wasteful enforcement of the supervisory control. We provide a case study further supporting this interpretation. |
| Keywords: | merger control; legal institutions; financial regulation |
| JEL: | G21 G28 D4 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:eui:euiwps:eco2012/12&r=com |
| By: | Gorecki, Paul K. |
| Abstract: | This paper analyses the conduct of competition policy in Ireland between 2000 and 2011. Attention is paid to the policies and actions of those persons and institutions responsible for competition policy: the Minister for Jobs, Enterprise and Innovation; the Competition Authority; the Courts; and, since 2010, the European Union and the International Monetary Fund. Competition policy after some initial setbacks at the beginning of the recession, has enjoyed strong support since 2010. |
| Keywords: | competition/COMPETITION POLICY/Ireland/Policy/recession/European Union |
| Date: | 2012–03 |
| URL: | http://d.repec.org/n?u=RePEc:esr:wpaper:wp427&r=com |
| By: | Bejger, Sylwester |
| Abstract: | This article is devoted to the problem of the detection of overt or tacit collusion equilibrium in the context of the choice of the appropriate econometric method, a choice that is determined by the amount of information that the observer possesses. The author addresses this problem in two steps. First, to provide a theoretical background, he uses a collusion marker based on structural disturbances in a price process'; variance. Then, he applies a Markov switching model with switching in variance regimes. The author considers this method adequate and coherent with the problem structure and the research objective, and useful for assessing the functionality of the collusion marker he uses. He uses the model to examine the Indian cement industry in the period 1994-2009 and finds some objective indications of collusion and competition phases. These phases are confirmed by certain historical facts as well as by numerous research articles. -- |
| Keywords: | Explicit and tacit collusion,collusive equilibrium,cartel detection,cement industry,price variance,Markov switching model |
| JEL: | C22 L13 L61 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwedp:201218&r=com |
| By: | Brekke, Kurt R. (Dept. of Economics, Norwegian School of Economics and Business Administration); Siciliani, Luigi (University of York); Straume, Odd Rune (University of Minho) |
| Abstract: | We study the e¤ect of competition on quality in markets such as health care, long-term care and education, when providers choose both prices and quality in a setting of spatial competition. We o¤er a novel mechanism whereby competition leads to lower quality. This mechanism relies on two key assumptions, namely that the providers are motivated and risk-averse. Our proposed mechanism can help explain several empirical …ndings of a negative e¤ect of competition on quality. |
| Keywords: | Quality and price competition; Motivated providers; Risk-averse providers. |
| JEL: | D21 D43 L13 L30 |
| Date: | 2012–04–02 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:nhheco:2012_009&r=com |
| By: | Brekke, Kurt R. (Dept. of Economics, Norwegian School of Economics and Business Administration); Siciliani, Luigi (University of York); Straume, Odd Rune (University of Minho) |
| Abstract: | We study the incentives for hospitals to provide quality and expend cost-reducing effort when their budgets are soft, i.e., the payer may cover deficits or confiscate surpluses. The basic set up is a Hotelling model with two hospitals that differ in location and face demand uncertainty, where the hospitals run deficits (surpluses) in the high (low) demand state. Softer budgets reduce cost efficiency, while the effect on quality is ambiguous. For given cost efficiency, softer budgets increase quality since parts of the expenditures may be covered by the payer. However, softer budgets reduce cost-reducing effort and the profit margin, which in turn weakens quality incentives. We also find that profit confiscation reduces quality and cost-reducing effort. First best is achieved by a strict no-bailout and no-profit-confiscation policy when the regulated price is optimally set. However, for suboptimal prices a more lenient bailout policy can be welfare improving. |
| Keywords: | Hospital competition; Soft budgets; Quality; Cost efficiency. |
| JEL: | I11 I18 L13 L32 |
| Date: | 2012–03–15 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:nhheco:2012_006&r=com |
| By: | Jordi Perdiguero (Dept. de Política Econòmica. Grup de Recerca en Governs i Mercats (GiM). Institut d’Economia Aplicada (IREA). Universitat de Barcelona. Spain); Joan-Ramon Borrell (Dept. de Política Econòmica. Grup de Recerca en Governs i Mercats (GiM). Institut d’Economia Aplicada (IREA). Universitat de Barcelona. Spain) |
| Abstract: | Relevant market definition is still a key element of economic analysis of competition in the gasoline market. It is particularly difficult to handle when competition is local and market power is geographically constrained like is the case in the gasoline market. We analyse how the application of the hypothetical monopolist or Small but Significant Non-Transitory Increase in Prices (SSNIP) test performs for defining isochrones using only information on prices and distance among competitors. We conclude that geographic information systems can be very successfully used to define more precisely relevant geographic market in the gasoline retailing. The application to the Spanish gasoline market concludes that geographic relevant market is composed by 5-6 minutes of travel time. Localised market power should be taken into account when analysing the adverse effects of mergers and entry regulations in gasoline retailing. Only drawing small enough isochrones will drive competition in local markets because it is just close rivals that compete effectively with each other. |
| Keywords: | Gasoline, Market definition, Retailing. |
| JEL: | L11 L12 L14 R12 |
| Date: | 2012–03 |
| URL: | http://d.repec.org/n?u=RePEc:xrp:wpaper:xreap2012-04&r=com |
| By: | Haucap, Justus; Müller, Hans Christian |
| Abstract: | Economic theory suggests that gasoline retail markets are prone to collusive behavior. Oligopoly market structures prevail, market interactions occur frequently, prices are highly transparent, and demand is rather inelastic. A recent sector inquiry in Germany backed suspicions of tacit collusion and suggested to adopt regulatory pricing rules for gas stations similar to those implemented in Austria, parts of Australia, Luxembourg or parts of Canada. In order to increase consumer welfare these rules either restrict the number of price changes per day or they limit the mark‐up for gasoline retail prices. As theoretical predictions about the impact of these measures are mixed and empirical studies rare, we analyze the effects, using an experimental gasoline market in the lab. Our results reveal that two of the suggested rules rather decrease consumer welfare: The Austrian rule which only allows one price increase per day (while price cuts are always possible) and the Luxembourg rule which introduces a maximum markup for retailers. While no rule tends to induce lower retail prices, the Western Australian rule which allows at most one daily price change (no matter whether up or down) does at least not harm consumers. -- |
| Keywords: | Gasoline Prices,Fuel Prices,Experimental Gasoline Market,Fuel Price Regulation,Retail Price Regulation,Gas Stations |
| JEL: | L13 L71 L81 L88 K23 C90 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:dicedp:47&r=com |
| By: | Ginger Zhe Jin; Marc Rysman |
| Abstract: | We study a new data set of US sports card conventions in order to evaluate the pricing theory of two-sided markets. Conventions are two-sided because organizers must set fees to attract both consumers and dealers. We have detailed information on consumer price, dealer price and, since most conventions are local, the market structure for conventions. We present several findings: first, consumer pricing decreases with competition at any reasonable distance, but pricing to dealers is insensitive to competition and in longer distances even increases with competition. Second, when consumer price is zero (and thus constrained), dealer price decreases more strongly with competition. These results are compatible with existing models of two-sided markets, but are difficult to explain without such models. |
| JEL: | D4 L1 L8 |
| Date: | 2012–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:17959&r=com |
| By: | Stühmeier, Torben |
| Abstract: | This model discusses mobile network operators' (MNOs) incentives to invest in their network facilities such as new 4G networks under various regimes of data roaming charge regulation. Given an induced externality of investments (spillovers) due to the roaming agreements it will be shown that MNOs, competing on investments, widely set higher investments for below cost regulation of roaming charges. Otherwise, if MNOs are free to collaborate on investments, they set higher investment levels for above cost roaming charges. Both below- and above cost charges may be preferred from a welfare perspective. Furthermore, the paper discusses e ects of the roaming charge regulation on roaming quality and MNOs' coverage. -- |
| Keywords: | mobile Internet,investment spillover,national roaming,regulation |
| JEL: | L22 L51 L96 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:dicedp:46&r=com |
| By: | Filistrucchi, L.; Antonielli, M. (Tilburg University, Center for Economic Research) |
| Abstract: | Abstract: We analyse a newspaper market where two editors first choose the political position of their newspaper, then set cover prices and advertising tariffs. We build on the work of Gabszewicz, Laussel and Sonnac (2001, 2002), whose model of competition among newspaper publishers we take as the stage game of an infinitely repeated game, and investigate the incentives to collude and the properties of the collusive agreements in terms of welfare and pluralism. We analyse and compare two forms of collusion: in the first, publishers cooperatively select both prices and political position; in the second, publishers cooperatively select prices only. We show that collusion on prices reinforces the tendency towards a Pensée Unique discussed in Gabszewicz, Laussel and Sonnac (2001), while collusion on both prices and the political line would tend to mitigate it. Our findings question the rationale for Joint Operating Agreements among US newspapers, which allow publishers to cooperate in setting cover prices and advertising tariffs but not the editorial line. We also show that, whatever the form of collusion, incentives to collude first increase, then decrease as advertising revenues per reader increase. |
| Keywords: | collusion;newspapers;two-sided markets;indirect network effects;pluralism;spatial competition. |
| JEL: | L41 L82 D43 K21 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:kubcen:2012024&r=com |